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Disclaimer

SAP, R/3, mySAP, xApps, SAP NetWeaver, Duet, Business ByDesign, PartnerEdge, and other SAP products and services mentioned in this book as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries.

Microsoft, MS DOS, MS SQL, Microsoft Office, Windows, Dynamics, BizSpark, Startup Zone and other Microsoft products and services mentioned in this book are trademarks or registered trademarks of Microsoft Corporation. Adobe, Adobe Portable Document Format (PDF), Adobe Reader and other Adobe products mentioned in this book are trademarks of Adobe Systems Incorporated. Google, Google Search and other Google products mentioned in this book are trademarks of Google Incorporated.IBM, IBM Global Services, Lotus 1-2-3 and other IBM products mentioned in this book are trademarks of IBM Corporation.

Other Company or product names mentioned in this book are trademarks or registered trademarks of the respective owners. The information contained in this book serves informational purposes only. Synomic and the authors assume no responsibility for errors or omissions in this document and do not Warrant the accuracy or completeness of any information, text, graphics, links, or other items.

This book is provided without warranty of any kind, either express or implied. Synomic and the authors shall have no liability for damages of any kind that may result from the use of this information. The authors also have no control over information that you may access through the use of via web links contained in these materials and do not endorse your use of Web pages, nor do they provide any warranty whatsoever relating to third-party web pages.

All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or Internet Solution, without the prior written permission of the publisher.

Content Overview

3.2 SOFTWARE AND SOFTWARE MARKETS: OVERVIEW OF SELECTED CHARACTERISTICS OF THE SOFTWARE INDUSTRY

Dedicated to the loved ones of the authors

1. Preface

Preface by Mr. Karl-Heinz Streibich, Chief Executive Officer (CEO) and Member of the Executive Board of Software AG:

Software Clusters are locally concentrated Software Ecosystems and important for the success of the Software industry. However, global Software players such as SAP AG and Software AG are not just part of the local Software Cluster but also open and leverage their own respective global Software partner ecosystems for the overall success of the entire Cluster.

Strengthening Germany with policy that promotes clusters

Innovative power is a crucial geographic factor, and efficiency is the key to successfully facing international competitive pressure. Companies achieve efficiency not only through economies of scale due to size, Cooperation and partnerships, they also do it through process efficiency. Global partnerships and local Clusters create long-term competitive advantages, giving rise to economic growth and prosperity.

Local Clusters are more than the sum of their individual parts. However, they only become truly real when their members have solid joint projects, promoting networking and common action within. Clusters mean short paths, intensive communication and speed— in short, efficiency.

New trends and research findings can be incorporated into business more quickly; overlapping research is reduced. Only the quiekest to establish research results in the marketplace will secure lasting growth and employment. Germany has a lot of catching up to do in this area. We know how to turn money into knowledge, but we have to figure out how to convert that knowledge back into money. Successful Clusters do just that. They bridge the gap between science and business, turning Clusters into crystallization centers and drivers of innovation for the industry.

Clusters need SMEs and startups, but they also need global players to serve as engines: Smaller partners cannot grow without having global players in the Cluster. They have a difficult time transforming research results into international market success. Just having a business niche is no longer enough for SMEs to establish international relevance. An alliance with larger companies makes that both easier and much faster. SMEs benefit from the effective power of the big guys, and the big guys benefit from the flexibility of the smaller guys.

Clusters also make room for new ideas and products. Take Silicon Valley, for example: The mobility and start-up activity in Clusters is extremely high. Clusters have ideas, research, experts, services and venture capital specifically for the IT and Software industry—all in a small geographic area. An investor located in Silicon Valley doesn’t need someone to explain the importance of IT first. With a good idea and the right business plan, a startup can procure the necessary venture capital that might not materialize somewhere eise. It’s no coincidence that Google, Yahoo and Facebook all got their start there. This enables businesses to achieve critical mass quickly, and for the long term.

The “Software Innovation for the Digital Enterprise” Cluster will take on a similar role in Germany. It is already considered the “Silicon Valley” of Europe. Germany’s most important Software companies and scientific institutions are active in the Cluster. The primary goal: to enable the transformation of businesses into fully digital enterprises. In addition, another 5,000 skilled Professionals will be trained over the next five years and at least €300 million will be invested in the Cluster. The alliance partners want to grow Europe’s largest Software Cluster into a technology center of global importance.

This will strengthen the Software industry in Germany, and therefore strengthen Germany as an economic and business center. As an interdisciplinary technology that is essential to keeping our national economy competitive, the Software industry alone is projected to generate over 400,000 new jobs in Germany by the year 2030 (Prognos Institute). All this shows that promoting Clusters is the right method for strengthening Germany as an innovation center. Strengthening growth industries is the only way we can maintain our competitive position and prosperity.

If high-tech professions migrate to the West and programming work to the East, then the outlook for our innovative ability at home is poor. The remaining “middle class” does not generate enough added value to regain and hold our position as export world champion.

We haven’t crossed the finish line yet. Our Clusters are still too small by international comparison. We have the potential, now we have to use it.

About Karl-Heinz Streibich:

Mr Streibich is Software AG’s (www.softwareag. com) Chief Executive Officer (CEO) and Member of the Executive Board. He is also a Member of the Supervisory Board of IDS Scheer AG (www.ids-scheer.com) Saarbrücken, Germany and Executive Member of BITKOM the German Federal Association for Information Technology, Telecommunications and New Media (www.bitkom.ors). Before joining Software AG, he served as deputy Chairman of the Board at T-Systems GmbH (www.t-systems.com). Prior to this did he worked for Dow Chemical, ITT and Daimler Benz AG. Mr. Streibich holds a degree in communications engineering (Dipl.-Ing. Nachrichtentechnik) from the Offenburg University of Applied Sciences, Germany.

About Software AG:

Software AG is the world’s largest independent provider of Business Infrastructure Software. 4,000 global enterprise customers achieve business results faster by modernizing, integrating and automating their IT systems and processes. As a result, they rapidly build measurable business value and meet changing business demands. Based on Software. AG’s solutions, organizations are able to liberate and govern their data, systems, applications, processes and services – achieving new levels of business flexibility. The leading product portfolio includes solutions for high Performance data management, developing and modernizing applications, enabling service-oriented architecture, and improving business processes. Software AG has almost 40 years of global IT experience and over 3,600 employees serving customers in 70 countries. The Company is headquartered in Germany and listed on the Frankfurt Stock Exchange (TecDAX, ISIN DE 0003304002 / SOW). Software AG posted total revenues of €721 million in 2008 (IFRS, unaudited). Software AG has celebrated its 40 anniversary in 2009. The Company has been at the forefront of technology innovation for four decades from its first product, and still the world’s fastest commercially available database, ADABAS, to its leading webMethods SOA and Business Process Management (BPM) suite.

2. Why should you read this book

This chapter contains background and motivation why ecosystems and partnerships are a tempting business opportunity for Software companies.

2.1 Why care about business models, ecosystems and partnerships?

Chapter Summary

This chapter illustrates that partnering in the Software industry is truly a proven business success story, that ecosystems are a great source of new customers as well as a source of customer opportunities across all industries and all geographic regions.

2.2 Why you should read this book

Chapter Summary

This chapter will get you excited about reading this book. This book is all about generating revenue through ecosystems and Software partnerships and shows you how to prepare for success and execute on the perfect partnering strategy. In its no-nonsense approach, the book will always refer to real-world experiences of existing partners. And it gives you the all the insights from Synomic and other companies from existing partner relationships. This book also provides hints, cheat sheets and shortcuts to get to a successful partnership as quickly as possible.

Define your strategy

First you have to make sure you know what your goals and strategy are. You may want to grow in a specific industry, in a specific global region, in a specific speed etc. All this information has to be taken into account to create your ecosystem and partnering strategy. This book helps you to create your strategy.

Know the opportunities

Second, this book will provide insights on ecosystems and the many partnering options and offerings. You have to know about the many opportunities in your ecosystem, the available partnership models and all the details to make partnerships successful: from legal to business development details. This book will provide you with evaluations of different partnering models from live partnerships and will define prerequisites for success in partnering. And it will show numerous examples from different ecosystems and partnering opportunities, e.g. in the ecosystems of SAP and Microsoft.

Select the right business model and partnering strategy

Third, you leverage your defined strategy and available options to select the right business model and partnering strategy for you. Once you have your growth and partnering strategy in place, you can easily match your offering and your growth strategy to available partnering opportunities. This will dramatically reduce the effort of choosing and executing the right partnering strategy and it will also reduce the risk, because you have the legal view of the contracts and you get advice on potential pitfalls and how to avoid them.

To make a long story short, cheat sheets will provide quick access to the right partnership strategy for your Company and act as a never lost in the ecosystem. Another ingredient to defining and selecting the right partnering strategy is the legal framework and the legal aspects that are important in a specific partnering relationship. So some legal aspects will be covered in this book as well.

Execute on the perfect ecosystem and partnership

With your game plan in place, you can Start executing your ecosystems and partnership strategy to generate money. Tips and tricks from existing partners and cheat sheets make this book a valuable reference. We also provide recommendations for Consulting companies who can help you along the way to the perfect partnership and commercial success.

2.3 Editions of this book

The Student edition contains basic knowledge about the Software industry and its mechanisms and offers literature per chapter and questions to check the learnings from the chapter. It is also a cheap offering to support the education Community.

This book is the professional edition and contains much more business content that helps practitioners to select the right partnering and ecosystem strategy and to create successful partnerships. In addition to the content of the Student version, it contains practical advice from industry experiences of Software companies, process descriptions how to create partnerships, cheat sheets and shortcuts to get to successful ecosystems and partnerships as quickly as possible.

2.4 About the Authors

This book was written by a small team of seasoned ecosystem, partnership and business development experts.

Ralf Meyer

Synomic is a boutique management consultancy with a focus on the SAP ecosystem and Software start-ups. The founder of Synomic is Ralf Meyer, who has more than 25 years of experience in the Enterprise Software industry and who has a successful management track record at SAP AG and several international SAP Software partners.

Ralf is also a co-founder and active member of the International Association for SAP Partners e.V. (IA4SP), based in Walldorf /Germany.

Dr. Karl Popp

A key contributor to this book is Dr. Karl Popp. He is a veteran in the Software industry and has worked in a variety of positions in development, quality management and partner management as well as mergers and acquisitions at large and small Software companies. Being an economist, he spent most of his academic career working on OEM, resell relationships and mergers and acquisitions. Earlier he focused on aspects of business process modeling and specification of information systems based on business process models.

His expertise in ecosystems and partnering relationships in the Software industry comes from his responsibility for numerous OEM and resell relationships at SAP, where he was managing all OEM and resell relationships for SAP’s technology Stack, SAP NetWeaver.

His current focus is on evaluating mergers and acquisitions for all of SAP’s Solution offerings and M&A process definition and improvement. In addition, Karl is a long time member of ACM, IEEE, OMG and a fellow of SAP Ventures. In the past, Karl has published books and numerous articles.

2.5 Credits

Another good reason to read this book is the help and advice from many experts in the Software industry, that has helped making this book an upto-date guide for the Software industry.

First and foremost, we would like to thank our families for their ongoing support of our work, their emotional Support and their love and creativity.

We are grateful to Prof. Dr. Peter Buxmann, Dr. Heiner Diefenbach and Prof. Dr. Thomas Hess, who have provided chapter two of this book. Our thanks go to Philip Mast and Markus Hahn for the translation and adoption of this chapter. In addition, Peter Buxmann also proofread the book. We would also like to thank Mr. Jürgen Grebe from Microsoft for his valuable input on the Microsoft partner ecosystem.

People from numerous companies supported us in creating this book. The list contains, but is not limited to Synomic, HP, IBM, Microsoft, Jaspersoft. Much more Company names can be found in the many examples of this book.

Great support also came from John Spencer, my colleagues in the corporate development team at SAP, in the SAP NetWeaver Partner Management team and at SAP Ventures. Special thanks go to Ferdinand Popp for his great ideas on designing the front cover.

3. Economic Foundations of the Software Industry

This section has been provided by Peter Buxmann, Heiner Diefenbach, Thomas Hess. It is based upon the first chapter of the book „Die Softwareindustrie“ (by Peter Buxmann, Heiner Diefenbach, Thomas Hess).

3.1 Introduction

Hardly any other industry has changed the society and corporate world in such sustaining and distinct way, as the Software industry did. Thus, today’s Software Support in intra-and intercompany business processes is as seif evident as searching for information via Google or handling a personal navigation assistant.

Hence, it is not unexpected that according to the IDC, the Software industry, with an annual turnover of 230 billion US Dollars (not including additional services) and a seven percent increase in Europe and an up to nine percent increase in Asia, is a major growth market. In that context, the Software industry is one of the most internationalized business sectors. Correspondingly Software companies compete globally for clients and moreover for employees. Not only in the matter of international markets, but in the cause of the distinct characteristics of the good Software, there are special rules applying to Software vendors.

In this article we shall outline the strong distinctions of the Software industry and focus on different types of Software providers. In particular, we will examine the increasing relevance of profits of services in the Software sector.

3.2 Software and Software Markets: Overview of selected characteristics of the Software Industry

The Software industry fundamentally differs from other industries. This may be ascribed to the specific characteristics of the product Software on the one hand and to the structure of Software markets on the other hand.

A distinct uniqueness of Software products, and of any other digital good, is the replication for negligible costs, since variable costs tend to zero. This cost structure indicates that Software licensing, at least at first glance, is much more profitable than the Service business. Besides that, Software may be replicated at any time and without any lack of quality.

Once a copy circulates on the internet, Copyrights and entitlements cannot be enforced anymore. This applies in particular to considerably undemanding products on Business-to-Consumer markets, which do not need any further Instructions or training. To a certain extent it is also unproblematic to create a variety of Software versions or packages and seil them on different levels of pricing and to a diversity of customer groups.

There are also certain characteristics that are relevant only for Software markets. Almost no other industry shows such immense internationalization. Designed and developed on a global basis, Software can be distributed via the internet within seconds at low costs. Hence, a worldwide competition between Software providers evolves. In comparison to other industries, a home field advantage on national markets is secondary. German Software suppliers generate on average about 50 percent of their turnover abroad. For instance, SAP generates about 80 percent and Software AG even 85 percent in foreign countries [Lüne07], Additionally, the network effect characteristics of Software often lead to “winner takes it all” markets, which have an important impact on the multitude of acquisitions in the Software industry.

These and other special economic principles and rules are the basis for the development of strategies and business concepts for the Software industry. But before we have a closer look at those principles, we briefly consider the historical development of the Software industry.

3.3 The early stages of the Software Industry

The Software technology is a fairly young industry. Beginning in the early 1950s, Software still was an integrated part of the hardware and sold in bundles. It was not until 1959, when the source code was referred to the term Software the first time [Camp95], Simultaneously, the first minor Software companies were established in the US, developing customized source code on commission [Hoc+99].

In 1969, an advancement in Software technology occurred, after the US Attorney General demanded that Software and hardware had to be disclosed separately on bills. Subsequently a number of companies were founded in the 70s, solely engaged in the development of Software. And of course predominantly to be mentioned is Microsoft; founded by Bill Gates and Paul Allen, the Company started off by designing programming languages – including BASIC, later on FORTAN and COBOL – for a variety of processors and Computers. Thereinafter, MS DOS has been developed in a Joint Venture with IBM, becoming the first commercial off-the-shelf operating system and making a major contribution to the distribution of personal Computers.

Finally, Microsoft decided to offer Software applications and engaged in the competitive markets with companies like Lotus. Already in 1983 Bill Gates announced Microsoft’s new business objective in the Business Week, to offer all Computer Software from one source.

Impressum

Disclaimer

Copyright © 2010 Synomic GmbH

Content Overview

Table of Contents

Dedicated to the loved ones of the authors

1. Preface

Strengthening Germany with policy that promotes clusters

About Karl-Heinz Streibich:

About Software AG:

2. Why should you read this book

2.1 Why care about business models, ecosystems and partnerships?

Chapter Summary

2.2 Why you should read this book

Chapter Summary

Define your strategy

Know the opportunities

Select the right business model and partnering strategy

Execute on the perfect ecosystem and partnership

2.3 Editions of this book

2.4 About the Authors

Ralf Meyer

Dr. Karl Popp

2.5 Credits

3. Economic Foundations of the Software Industry

3.1 Introduction

3.2 Software and Software Markets: Overview of selected characteristics of the Software Industry

3.3 The early stages of the Software Industry